High Court Approves Administrative Sanctions Regime against Former Officer

The High Court on 4 January 2016 refused a judicial review of the administrative sanctions procedure (the "ASP") commenced by the Central Bank of Ireland (the "CBI") against Michael P Fingleton, a former director and chief executive of the Irish Nationwide Building Society ("INBS") (Fingleton v The Central Bank of Ireland [2016] IEHC 1).

This decision is the first judicial analysis of CBI's powers under the ASP. The ASP allows CBI to investigate regulatory breaches by a regulated institution. An ASP can lead to a caution, reprimand, a fine of up to €5 million and/or disqualification. The regulated institution and those concerned in its management, e.g. directors and other officers, can be the subject of an ASP. The applicant's challenge centred on the interpretation of CBI's statutory powers to pursue the ASP against a person who is no longer an officer of the regulated institution. The challenge failed.

Background

The applicant was a director of INBS from 1971 until January 2008. He was then chief executive officer until April 2009. INBS collapsed in 2008. CBI presented evidence that the collapse of INBS resulted in a cost to the Irish taxpayer of €8 billion (albeit that this figure was disputed by the applicant). In February 2011 all of INBS' deposits were transferred to Permanent tsb and in July 2011 all of INBS' remaining assets and liabilities were transferred to IBRC at which point INBS ceased to carry on business.

In January 2012 CBI informed the applicant that it was embarking on an examination of suspected contraventions of financial services law by INBS. In March 2012 the applicant confirmed, through his then solicitors, that he would assist and co-operate with the CBI. However, he subsequently changed his position and, in May 2012, he informed CBI that he would not participate. On 9 July 2015 CBI served a notice of inquiry concerning INBS on the applicant, INBS and others. On 15 July 2015 CBI entered into a settlement agreement with INBS under the ASP whereby INBS admitted "multiple breaches" of regulatory provisions and consented to a fine of €5 million (the statutory maximum). In the light of INBS' insolvency CBI said that it did not intend to pursue recovery of the fine.

The decision

The applicant's challenge focussed on a point of statutory interpretation. He contended that the legislation establishing the ASP meant that CBI could not begin an ASP against a person who was no longer an officer of a regulated institution. This argument was rejected. The provisions were designed to enable CBI to investigate conduct by persons who were in a position to control the activities of the regulated entity at the time of the suspected contravention. The judge held that the interpretation contended for by the applicant could not have been intended by the legislature because it would mean that an officer of a regulated entity could avoid being subject to an ASP by simply resigning his position. Conversely, the applicant's interpretation would mean that a person who had a subordinate role at the time of the contravention would become the subject of an ASP simply because he or she had been promoted to the position of a director or other officer.

The applicant also contended that CBI had no jurisdiction to conduct the ASP because it amounted to the administration of justice and under the Constitution this function is reserved to the courts. Noonan J held that this contention could not be advanced because the applicant had not joined Ireland and the Attorney General to the proceedings as respondents – an essential procedural step required in any challenge to the constitutionality of legislation.

Noonan J also held that CBI's settlement with INBS did not mean that CBI could not proceed with the ASP against the applicant. It was open to the applicant to make submissions to the panel conducting the ASP to ensure that he obtained a fair hearing notwithstanding CBI's settlement of an ASP against INBS.

Conclusions

The applicant's challenge failed because his basic contention (that only current management of the regulated institution could be made the subject of the ASP) did not accord with logic or common sense. It has been considered that the principal basis on which an applicant would challenge the ASP would have been on the ground that it amounts to the administration of justice, involving as it does an investigation and the potential imposition of penalties. Such an argument would require Ireland and the Attorney General to be party to the proceedings. The applicant's proceedings were not appropriate for a constitutional challenge and so his constitutional arguments were not entertained.